Thai Beverage PLC - Phillip Securities 2019-05-13: Consumers Preferred Beer This Quarter

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)

Thai Beverage PLC - Consumers Preferred Beer This Quarter

THAI BEVERAGE PUBLIC CO LTD (SGX:Y92)'s 2Q19 revenue and profits were above expectations. Sabeco surprised with an upside, whilst spirits business was marginally weaker.
Sabeco volumes rose c.14.8% y-o-y in 2Q19. A price hike in March 2019 will support margins that have been under pressure from higher malt prices.
Maintain NEUTRAL. We raised our SOTP-derived Target Price to S$0.83 (previously S$0.81) as we raised our FY19e forecast by 6%.
Growth in Sabeco has been better than expected. However, operating profits had been restrained by the 54% rise in net interest expense. Spirits still account for 80% of group net profits, with beer comprising only 7%.

Sabeco volumes surged almost 15% y-o-y in 2Q19, due to two main reasons.
- Firstly, the company mentioned it is gaining market share as overall market volumes are only rising 4-5%. Volume guidance for the year is maintained at 8%.
- Secondly, the traditional trade load in December did not take place, therefore benefitting January volumes.
The two fastest growing brands in their portfolio are Saigon Larger and Saigon Special.

Losses for NAB halved from Bt351bn in 2Q18 to Bt128bn in 2Q19. Earnings benefited from higher sales and improved product mix.
While total volumes rose only 3%, a higher volume of sales were from the higher-priced products (carbonated soft drinks: +16.4%; ready-to-drink tea: +17.1%). Total volumes were sluggish due to a 1.2% y-o-y decline in drinking water volumes and a 22% y-o-y drop in sales of the Jubjai herbal drink.
Another reason margins improved is the shift from modern to traditional sales.

Spirits revenue was down 5.8% y-o-y. The drag stemmed from a 5.3% drop in Thailand volumes – brown spirits volume declined y-o-y while white spirits was flat y-o-y.
Recall that an elderly fund tax of 2% was imposed in February 2018. This would have resulted in higher selling prices in April 2018. Therefore, customers front-loaded orders in March 2018.

Some of the restructuring efforts made by the company include:
1. Low single-digit price hike in March. Company was confident there would not be an impact on volumes.
2. At present, Sabeco has 25 breweries. The capacity is much more than required and not all plants are 100% owned by Sabeco. It plans to allocate more purchases to plants they have a higher shareholding. This can help improve gross margins.
3. Sabeco reiterated that it has not invested enough in the brands. More expenditure will be spent this year on the brands and sales force.
4. Sabeco closed one office each in Hanoi and Ho Chi Minh. As at end-2Q19, all cans are down gauged and carton box light weighted.
On the spirits business, it is a category that is still growing, at around 3% p.a. The celebration of the King of Thailand’s coronation in every province will be an extra boost to consumption.

Maintain NEUTRAL and increased our SOTP-derived Target Price to S$0.83 (previously S$0.81).
Our target price had been raised as we revised our FY19e net profit forecast upwards by 6%.
Growth in Sabeco has been better than expected. However, operating profits had been restrained by a 54% rise in net interest expense.
Spirits still account for 80% of group net profits, with beer comprising only 7%.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-13

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